Donald Trump needs Jay Powell

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The market does not like when the president threatens the chairman of the Federal Reserve. Of course, Donald Trump has previously accumulated for Jay Powell, but yesterday’s interpretation was more acidic than usual, and came after Trump’s adviser, Kevin Hassett, said the White House would “continue to study” removing the Central General Banking Trump. Stocks down, dollar down, short yields down, long yields, meant up -to -being, the golden road up. ICK.

Expect the noise to continue. But I don’t think Trump will try to turn on Powell; I would set the chances of it happening at about 10 percent. I think this because it would be against Trump’s own interests, in direct ways.

Yesterday it was just a taste of how the market would respond to a successful attempt to attract Powell from his work before his mandate was over next May. I would expect that the effects of the first order market and the economic effects of the second order of the completion of the nourished independence are severe enough to drain the administration of political capital, will have to become very legislative in front of the averages, and to dedicate the Trump or Senate party in that election. Grumbling can already be heard on the outskirts of the Republican Party for Trump’s economic policy. He has no endless place to screw.

(Aside, if Trump declared his choice for the next Fed chair, and would be chairs-to be Lackey Mclickspittle to start doing policy pronunciations before taking office, it would be equal to the Powell fire, and perhaps more scary for markets).

It is not just the high risks of movement that Trump must be detached; Returns are also low. The impact of the destruction of the independence of the Central Bank can be divided into market shock and the effect on monetary policy. The shock of the market would come down to permanently reduce the stock estimates and higher bonds premiums – that is, the lowest actions and bond prices, everything else equal – because the expected instability of inflation and norms will rise, independent of what the newly appointed mayor did.

The new chair will apparently push for lowering rates. This may be the right call. The negative impact of growing tariffs can overload their inflationary effects. Or maybe the inflationary effects would be once. It is difficult to predict. But Trump would have paid for a better monetary policy with a market shock that could easily cause a recession. Recipes get all entertainment from low rates. On the other hand, if landing rates are the wrong decision, the inflation would return and the rates would have to go higher than they would have been, without much reduction the risks of the recession. And there is also a considerable cost to get rid of Powell: not having a redemption if the economy continues to break down. If Trump gets a chair fed with pets, he owns every part of whatever happens.

All this, in exchange for your choice of Fed chair a year faster than otherwise? No thanks. I think that mixing the risk/reward for the obligation of the Powell outside is terrible, and Trump will surely see it.

(By the way, I said above than the end of Fed’s independence will mean lower bond prices everything else equal. But everything else may not be. If the market shock is bad enough, the bond market can see the right through inflationary risks and in recession, and bond prices can rise immediately).

By stating my prediction with such a belief, readers need to know that Wall Street’s range of thought on this issue is wide. The leading investment official in a very big wealth manager told me yesterday that the chances of Trump to force Powell abroad were:

Very low (as) would certainly cause a capital flight from the US but Trump is frustrated and it is unlikely to stop talking about it, and consequently, markets will be appreciated in paranoia.

A Wall Street strategist agreed:

Sets the chances around zero. When you see John Kennedy, a High Republican in the Banking Committee (Senate), weighing over the weekend he supports Powell and fuel independence, you have the sense that they fully understand and wanted it to communicate immediately that Powell’s shooting would be a body collided about treasures and dollars.

On the other hand, a high executive in a large Quant fund thinks it is extended chances – and that it doesn’t matter:

50/50. . . Trump Sorta wins the same way. If there is a bear market or a recession, he can blame Biden and Powell, whether he rests it or not. If there is none, he can get the loan, whether he rests it or not. . . If it happens, it will not be a surprise. Markets move by surprise. I think the conversation about fire is already moving the market more than the reality would do. I think, if it happens, there is a short bounce. His replacement would be important, and the temporary default would be (John) Williams (New York Fed), which simply means the same

Another CIO assets manager thinks more likely than not:

The chances are greater than 50 percent. Trump has already shown that he has little consideration for these things and has been fully driven by punishment

Either way, the damage is done. Expect constant pressure on the dollar, rates and exits. Increasingly, foreign investors are disappointed and will continue to split away from us. (Foreign foreign investment) is a very simple premise – 1) Rule of Law 2) Political/Structural Stability 3) A reliable system in the country to raise and arbitrate disputes. Three strikes in front of the US.

I think there is much more harm to do, and that Trump will eventually recognize this if he does not already. Betting markets, it’s worth noting, set a 26 percent chance that Powell comes out before the end of the year. I think it’s too high.

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